After the Communists' victory in China, Li was appointed Party Secretary of Hubei Province in China from 1949–1954, and he served as the commander and political commissar of the Hubei Province's military garrison. In 1950, Li was elected the first Chairman of the Hubei People's Government. While he was working in Hubei, Li was appointed Party Secretary of Wuhan and Vice-Chairman of the PRC's Military Commission for South-Central China.

In 1954, Li was appointed China's Minister of Finance. Li was also appointed Vice Premier for the entire period of 1954–1980. Despite losing his job as Finance Minister during the Cultural Revolution, he nonetheless enjoyed Zhou Enlai's protection and was the only civilian official to serve with the premier throughout that entire tumultuous period.[5]:xviii In 1976, Li played an instrumental role in destroying the Gang Of Four. After the demise of the Gang, Li was appointed Vice Chairman of the Communist Party of China and a member of the Central Military Commission.

When Hua Guofeng rose to leadership after the death of Mao Zedong, Li became Hua's chief economic adviser. If Hua had been successful in his efforts to achieve supreme power, Li would have become one of the most powerful officials in China, but Li's political career stalled when Deng Xiaoping eclipsed Hua as China's "Paramount Leader". For the rest of his career, Li complained that his own achievements during the brief Hua interregnum were not sufficiently recognized as the basis of the progress experienced in China during the 1980s.[5]:xviii Li supported Deng's reform and helped Deng in the rise to power.[6]

Li was a firm believer in orthodox central planning and sociopolitical conformity, so disliked Deng Xiaoping's more radical reform ideas. He had in fact been largely responsible for drafting the short-lived Ten Year Plan of 1978 which attempted to build a Soviet-style economy based around heavy industry and energy production. Deng quickly terminated that idea and instituted his own "go slow" approach that involved gradually allowing the development of light industry and consumer goods. He also went about assigning government posts to younger men who were followers of his ideas. One of these was Premier Zhao Ziyang, whom Li strongly opposed for being too willing to import Western ideas and move away from a planned economy. According to Zhao, Li "hated me because I was implementing Deng Xiaoping's reforms, but since it was difficult for him to openly oppose Deng, he made me the target of his opposition."[5]:xviii-xix

In 1983, after the passing of a new constitution, Li was appointed President of China at the age of 74. According to the 1982 Constitution, the role of President was "largely ceremonial", but recognized Li's role as a respected Party elder and a member of the Politburo Standing Committee. In 1984, Li met with U.S. President Ronald Reagan during the latter's visit to China, notably discussing the status of Taiwan with the President.[7] Li visited the United States in July 1985, the first time the head of state of the People's Republic of China made such a visit.

As the decade progressed, Deng Xiaoping, always an opponent of lifetime tenure in office, gradually convinced most of the party elders to retire. Li stepped down as President in 1988 and was succeeded by Yang Shangkun. Li was then named Chairman of the National Committee of the CPPCC. He was a strong supporter of Jiang Zemin's rise to power,[8] and during the Tiananmen Square protests of 1989, Li was one of the hardline Party elders who pushed for a strong response to the demonstrations and supported Premier Li Peng's desire to use military force to suppress the protests. Li continued to serve in government until his death in 1992.

Li died on 21 June 1992 at the age of 82, two days shy of his 83rd birthday.[11] His funeral was held on 27 June 1992 and was attended by members of the Politburo Standing Committee. After the service, Li was cremated.[12]